Report Finds Wholesale Channel Less Expensive Than Retail

A recent report from investment management firm Conning & Co.'s Insurance Research Division dispels a long-held misperception that the wholesale distri-bution channel is substantially more expensive than the retail channel when it comes to placing specialty risks.

The report, commissioned by the National Association of Professional Surplus Lines Offices Ltd., analyzed distribution around cost structure and ratios between the wholesale and retail channels.

Conning measured all non-loss costs relative to direct written premium from 2010 to 2015 for insurance companies and found that the total non-loss cost ratio for the wholesale composite was lower than retail by 1%.

The analysis also says that the wholesale composite's commission ratio is consistently three to four points higher than the retail composite, but is offset by the wholesale composite's non-commission costs ratios, which average nearly four points lower than the retail composite. According to Conning's analysis, in 2015, the median annual non-commission cost ratio for the retail composite was 16.4% but for the wholesale composite was 11.8%.

The misconception that wholesaler expertise costs more than it does “could cause retail agents and brokers to overlook insurance solutions offered by wholesalers when, in fact, leveraging a wholesale partner to find the best and most cost-effective solution is the best way to serve the insured,” Brady Kelley, NAPSLO's executive director, tells National Underwriter. “The wholesaler's value — technical expertise, innovative solutions to complex risks, access to strong and stable surplus lines insurers — adds no cost to the transaction.”